Oil prices edged lower on Tuesday, ending a five-day streak of gains as the market refocused on demand concerns following OPEC’s decision to cut its forecast for demand growth in 2024 due to weaker expectations from China.
Global benchmark Brent crude futures dropped by 57 cents, or 0.7%, to $81.73 a barrel at 0630 GMT. Meanwhile, U.S. West Texas Intermediate crude futures fell 48 cents, or 0.6%, to $79.58 a barrel.
This decline follows a significant increase on Monday when Brent gained over 3% and U.S. crude futures rose more than 4%.
OPEC’s reduction in its global demand forecast for 2024 highlights the challenge the broader OPEC+ group faces in increasing production starting in October.
This is the first time OPEC has cut its 2024 forecast since it was initially made in July 2023. The revision comes amidst growing signs that demand in China is falling short of expectations due to a decline in diesel consumption and ongoing issues in the property sector, which are weighing on the world’s second-largest economy.
“Concerns about crude oil demand remain prevalent,” said Yeap Jun Rong, a market strategist at IG. He added that there are lingering uncertainties ahead of the upcoming U.S. inflation data.
“Any indication of heightened economic risks could weigh on oil prices, especially at a time when OPEC+ has lowered their 2024 demand forecast and plans to roll back production cuts starting in October, potentially pointing to a less tight oil market,” Yeap explained.
However, he also noted that investors are closely monitoring the latest geopolitical tensions.
The conflict in the Middle East has intensified, with the U.S. preparing for what could be significant attacks by Iran or its proxies in the region as early as this week, according to White House national security spokesperson John Kirby on Monday.
Such an attack could restrict global crude supplies and push prices higher. Additionally, it could prompt the United States to impose embargoes on Iranian crude exports, potentially impacting 1.5 million barrels per day of supply, analysts noted.
Markets are also gearing up for Wednesday’s U.S. consumer price index report, which will provide crucial insights into inflation. Investors are now concerned that an overly depressed CPI number could stoke fears of an economic downturn.
Money markets are currently split on whether the Federal Reserve will implement a 25- or 50-basis-point interest rate cut in September, with expectations of a total easing of 100 basis points by the end of 2024, according to CME’s FedWatch Tool.
Rate cuts generally stimulate economic activity, leading to increased energy consumption.
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